Understand USD - INR and currency derivatives

2.3.7 · Stock-Market › Commodities, Forex & Crypto

Overview

Currency derivatives woh financial instruments hain jinki value do currencies ke beech exchange rate se derive hoti hai. USD/INR pair (US Dollar se Indian Rupee) India mein sabse zyada trade hone wala currency pair hai, jo traders aur businesses ko currency risk se hedge karne ya exchange rate movements par speculate karne deta hai.

Figure — Understand USD - INR and currency derivatives

Core Concepts

Currency Derivatives ki Mathematics

Interest Rate Parity - The Foundation

First Principles se Derivation:

Do investment strategies se shuru karo jo equal returns deni chahiye (no arbitrage):

Strategy A (India mein raho):

₹1 India mein time $t$ ke liye invest karo
Final value: $₹ (1 + r_{d} \times t)$

Strategy B (USA jao aur hedge karke wapas aao):

₹1 ko spot rate $S$ par dollars mein convert karo: $\frac{1}{S}$ USD milega
USA mein rate $r_{f}$ par invest karo: $\frac{1}{S} (1 + r_{f} \times t)$ USD milega
Rate $F$ par wapas convert karne ke liye forward contract lock in karo: $F \times \frac{1}{S} (1 + r_{f} \times t)$ INR milega

No arbitrage ke liye: Strategy A = Strategy B

$1 + r_{d} \times t = F \times \frac{1}{S} (1 + r_{f} \times t)$

$F$ ke liye solve karo: $F = S \times \frac{1 + r _{d} \times t}{1 + r _{f} \times t}$

INTERPRET KAISE KARO: Agar Indian rates ( $r_{d}$ ) US rates ( $r_{f}$ ) se zyada hain, toh forward rate spot se ZYADA hogi (USD forward mein appreciate karta hai). Yeh interest differential ko compensate karta hai.

Currency Futures Pricing

Derivation:

Currency ke liye cost of carry interest rate differential hai.

USD hold karne ki cost:

Tum rupees par $r_{d}$ (India rate) earn karna chhod dete ho
Lekin tum dollars par $r_{f}$ (USA rate) earn karte ho

Net cost = $r_{d} - r_{f}$ (jo tumne chhoda minus jo tumne gain kiya)

Cost-of-carry model se: $F_{0} = S_{0} \times e^{(net carry cost) \times T} = S_{0} \times e^{(r_{d} - r_{f}) \times T}$

Worked example Currency Futures Contract Specifications (NSE)

NSE par USD/INR Futures:

Contract size: $1,000
Tick size: ₹0.0025 (ek paisa ka chautha hissa)
Expiry: Contract month ke last Thursday ko (agar Thursday holiday ho toh preceding trading day)
Settlement: INR mein cash-settled
Margin: ~3-5% (volatility ke saath change hota hai) Scenario: Tumhein expect hai ki USD ek mahine mein ₹83 se ₹85 tak strengthen hoga.

Action: 10 USD/INR futures contracts kharido

Contract value: 10 × $1,000 × ₹83 = ₹8,30,000
Margin required (4%): ₹33,200 1 mahine baad Outcome:
USD/INR ₹85 ho jaata hai
Profit per contract: $1,000 × (₹85 - ₹83) = ₹2,000
Total profit: 10 × ₹2,000 = ₹20,000
Return on margin: ₹20,000/₹33,200 = 60.2%

Yeh kaam kyun karta hai? Leverage. Tum ₹33,200 se ₹8.3 lakh control kar rahe ho. 2.4% currency move tumhare margin par 60% return mein translate hoti hai.

Currency Options - The Greeks

Worked example Currency Options se Hedging

Situation: Indian importer ko raw materials ke liye 2 mahine baad $50,000 pay karne hain. Current spot = ₹83. Darr: rupee ₹86 tak weaken ho jaaye.

Hedging Strategy: USD/INR Call Options kharido

Strike price (K): ₹84
Premium: ₹0.50 per dollar
Contracts: $50,000 worth Cost Analysis:
Premium paid: $50,000 × ₹0.50 = ₹25,000 Scenario 1 - Rupee ₹86 tak weaken hota hai:
Option exercise karo, ₹84 par kharido
Dollars ki cost: $50,000 × ₹84 = ₹42,00,000
Premium ke saath total cost: ₹42,00,000 + ₹25,000 = ₹42,25,000
Unhedged hote toh spot par cost: $50,000 × ₹86 = ₹43,00,000
Spot vs bachat: ₹43,00,000 - ₹42,25,000 = ₹75,000

Exercise kyun karo? Strike (₹84) < Spot (₹86). Option use karna sasta hai.

Scenario 2 - Rupee ₹81 tak strengthen hota hai:

Exercise mat karo (option expire hone do)
Spot par kharido: $50,000 × ₹81 = ₹40,50,000
Premium ke saath total cost: ₹40,50,000 + ₹25,000 = ₹40,75,000 Exercise kyun nahi? Spot (₹81) < Strike (₹84). Market, option se better hai.

Key insight: Options insurance provide karte hain. Tum ₹84 se upar protected ho, lekin agar rupee strengthen ho toh benefit bhi le sakte ho. Premium tumhari insurance cost hai.

Common Pitfalls

Common mistake Currency Futures Mein Overleveraging

Galat soch: "Mere paas ₹50,000 hain. Currency futures ko sirf 4% margin chahiye. Mein ₹12.5 lakh control kar sakta hoon! Bada profit!"

Kyun sahi lagta hai: Leverage gains multiply karta hai.

Sachai: Leverage losses bhi multiply karta hai. 4% adverse move tumhara POORA capital khatam kar deta hai. Volatility mein currency markets ek din mein 2-3% move kar sakti hain (central bank interventions, geopolitical events).

Real example: Aug 2013 mein, rupee ek mahine mein ₹60 se ₹68 gira (13%). Overleveraged traders ko margin calls aayi aur total loss hua.

Fix: Futures ko actual exposure hedge karne ke liye use karo, speculation ke liye nahi. Agar speculate karna hai, toh per trade sirf 1-2% capital risk karo. Stop-losses religiously set karo.

Practical Applications

Exporters ke Liye (USD Receive Kar Rahe Hain)

Risk: Rupee strengthen hona (USD/INR girna)

Solution: USD futures becho ya USD put options kharido

Futures kyun? Future receivables ke liye aaj ka rate lock in karo
Puts kyun? Insurance agar rupee strengthen ho; benefit agar weaken ho

Importers ke Liye (USD Pay Kar Rahe Hain)

Risk: Rupee weaken hona (USD/INR badhna)

Solution: USD futures kharido ya USD call options kharido

Futures kyun? Apna payment amount rupees mein fix karo
Calls kyun? Maximum cost cap karo; benefit agar rupee strengthen ho

Speculators ke Liye

USD par Bullish (INR depreciate hone ki expecting):

USD/INR futures kharido
USD/INR call options kharido
USD/INR put options becho (risky - unlimited loss potential)

USD par Bearish (INR appreciate hone ki expecting):

USD/INR futures becho
USD/INR put options kharido
USD/INR call options becho (risky)

Recall 12-saal ke bachche ko explain karo

Socho tum 3 mahine baad America ja rahe ho aur tumhein $100 chahiye. Aaj, har dollar ₹83 ka hai, toh tumhein ₹8,300 chahiye hoge.

Lekin agar jab tum jao tab dollars mehenge ho jaayein? Shayad ₹90 each! Tabh tumhein ₹9,000 chahiye hoge. Yeh ₹700 zyada hai!

Currency derivatives ek "coupon" khareedne jaisa hai aaj jo kehta hai "Main agli 3 mahine mein, market price chahe kuch bhi ho, $100 ₹83 each par khareed sakta hoon."

Futures ek aisa promise hai jo tumhein ZAROOR nibhana hoga — tum us price par BUY KAROGE hi. Options ek chhoti si fee pay karke us price par buy karne ka CHOICE lena jaisa hai. Agar dollars actually saste ho jaayein (₹80), tum apna coupon ignore karke market se khareed sakte ho. Lekin agar mehenge ho jaayein (₹90), tum apna coupon use karo aur paise bachao!

Companies yeh isliye use karti hain kyunki woh hamesha doosre deshon se cheezein kharidti aur bechti rehti hain. Woh surprise costs nahi chahti, isliye yeh tools se prices lock in karti hain. Kuch log inhe currency prices kis taraf move karengi iska bet lagaane ke liye bhi use karte hain, ek game ki tarah (lekin real money ke saath).

Connections

Introduction to commodities, forex & crypto - Alternative markets ki foundation
Gold, Silver, Crude basics - Commodity hedging mein similar futures use hote hain
Options basics - Same principles, alag underlying
Futures and forwards - Core derivative mechanics
Risk types - Currency risk systematic hai
Macro indicators - Interest rates, inflation forex ko affect karte hain

#flashcards/stock-market

USD/INR = 83.50 ka matlab kya hai? :: Ek US Dollar ki cost 83.50 Indian Rupees hai. Yeh ek quote hai jahan USD base currency hai aur INR quote currency hai.

Currency derivatives ke chaar main types kya hain?

1. Currency Futures (standardized, exchange-traded), 2. Currency Options (buy/sell karne ke rights), 3. Currency Forwards (customized OTC), 4. Currency Swaps (principal aur interest exchange karna).

Covered Interest Rate Parity formula batao :: F = S × (1 + r_d × t) / (1 + r_f × t), jahan F forward rate hai, S spot rate hai, r_d domestic rate hai, r_f foreign rate hai, aur t time period hai.

Forward rate, spot rate se kyun alag hoti hai?

Deshon ke beech interest rate differentials ki wajah se. Agar domestic rates > foreign rates, toh forward rate > spot rate (currency forward mein depreciate karti hai). Yeh arbitrage rokta hai.

Agar India rates = 6%, US rates = 4%, aur spot USD/INR = 80 hai, toh forward 80 se zyada hogi ya kam?

Zyada. Forward = 80 × (1.06/1.04) ≈ 81.54. Zyada domestic rates ka matlab USD par forward premium hai.

NSE par USD/INR futures ka contract size kya hai?

$1,000 per contract, expiry par INR mein settle hota hai.

NSE par USD/INR futures ka tick size kya hai?

₹0.0025 (ek paisa ka chautha hissa) per dollar.

NSE par USD/INR futures kab expire hote hain?

Contract month ke last Thursday ko (ya preceding trading day agar Thursday holiday ho).

Expiry par currency call option ka payoff formula kya hai?

Profit = max(S_T - K, 0) - Premium, jahan S_T expiry par spot hai aur K strike price hai. Tum upfront pay kiya gaya premium subtract karte ho.

Ek importer ko 2 mahine mein $10,000 pay karne hain. Current spot = ₹83. Hedge kaise karo?

USD/INR call options kharido ya USD/INR futures kharido. Yeh maximum payment lock in karta hai agar rupee weaken ho, upside risk se protect karta hai.

Agar USD/INR 84 se 80 girta hai, kaun sa currency strengthen hua?

Indian Rupee strengthen hua. Ek dollar khareedne ke liye fewer rupees chahiye (80 vs 84), toh rupee ki value badhi.

Currency futures ke liye typically margin requirement kya hoti hai?

Contract value ka lagbhag 3-5%, market volatility ke saath change hoti hai. Equity futures se kam, kyunki volatility kam hoti hai.

Forward rate, future spot rate ki prediction kyun NAHI hai?

Forward rate interest rate parity (arbitrage-free condition) se calculate hoti hai, market expectations se nahi. Expectations spot rate mein hain; forward premium/discount ek mechanical interest adjustment hai.

Agar forward rate > spot rate ho toh iska matlab kya hai?

Base currency (USD) par forward premium. Indicate karta hai ki domestic interest rates > foreign rates hain. Base currency forward market mein zyada costly hogi.